The aim of this thesis is to try to give some economic analysis on pharmaceutical issues. While conducting my research, I observed that most analysis of this industry were descriptive and empirical, and found that there was a lack of economic theory to explain the data. Hence, the objective of this research is clear: using industrial economics theoretical models, I wanted to explain the functioning of this industry in order to give a formal economic explanation for some results. For this purpose, I concentrated on two aspects of the pharmaceutical industry. In the first section, which includes Chapters 1 and 2, I focused on explaining the effects of implementing a reference price (RP) system, and the response of pharmaceutical firms to a change in the price regulation these firms face. The analysis will focus on both short (prices) and long term (R&D decisions) issues. In the second section, which includes Chapter 3, the focus is on the so-called "branded generics". I aim to explain why branded good producers also tend to produce a generic version of their original drug once the patent for the original good expires. Throughout the whole thesis, we will consider the existence of generic drugs. During the last years, these drugs have become increasingly important in the pharmaceutical industry, as explained later. To give an example that illustrates their importance, generics' share can be up to 50% of total market share in the US. A reference price reimbursement system categorises products into groups with similar therapeutic effects so that the reference price is the maximum reimbursement of the third-party payer to the manufacturers for all products in that group. Manufacturers are free to set prices. If prices set are higher than the reference price, it is the consumer who pays the difference. Such system tries to give some responsibility to patients, increasing their consciousness about costs, and providing them incentives. The objective of this system is twofold: first, it is believed that implementing a RP system encourages price competition, and second, with this increased price competition, expenditure of Health Authorities in ethical drugs will be reduced. However, the view of the pharmaceutical firms is that the introduction of such system will make them worse off due to lower profits, which will reduce their incentives to carry out R&D. Note the importance of the relation between reference prices and the existence of generic (cheaper) products. Generic goods are those goods that enter the market when the patent on the active ingredient of the original, branded, ethical drug has expired. Their main characteristic is that they are sold without a brand, and as a result are usually cheaper than the already established, branded, medicine. In all but few cases, these generics are certified by the respective Health Authorities to be perfect substitutes to the branded good since their active ingredient is identical. Furthermore, they are bioequivalent in the sense of being statistically indistinguishable from the established product in key aspects of therapeutic use. However, they could vary in characteristics such as shape, colour, packaging and labelling. Taking into account the fact that not all consumers switch immediately to generics gives support to the idea of both goods not being perfect substitutes. A necessary condition for an efficient implementation of a reference price system is a well-developed generic market. The reason for this is that the reference price is usually set around the price of the cheapest goods available. Should a generic good exist, it would normally have the lowest prices. However, the existence of such market is not a sufficient condition for an efficient implementation of such system. Broadly speaking, reference prices are aiming to reduce prices, so such system should be implemented in markets where the high pharmaceutical public expenditure was due to high average prices rather than due to high consumption levels. Moreover, the price difference between the drugs grouped should be significant; otherwise, the potential cost-savings of implementing a reference price system will be minimal. RPs have been implemented in many developed countries, the first one being Germany in 1989. From then on, many other countries followed Germany, and recently, Spain has also introduced it. Notice that the way RP have been implemented in each country has not been universal, so we will analyse two different possibilities of introducing such system. I believe that the analysis conducted in this thesis regarding the effects of reference prices is important due to the lack of theoretical research about this important topic. Chapters 1 and 2 give some formal economic analysis on these issues. The effects of implementing a reference price system will be analysed in two steps. The reason for this is to try to take into account the nature of the pharmaceutical industry, and the importance of R&D. Hence, and broadly speaking, we can say that Chapter 1 will focus on short-run decisions (prices, quantities), while Chapter 2 will focus on long-term variables (R&D). More specifically, in Chapter 1, we concentrate on what will be the effects price-wise of implementing a reference price system, compared to the situation with copayments. We will have a duopoly setting, with a branded and a generic good. We will consider two possible scenarios. In each scenario, we compare the outcomes between two forms of demand structures. Broadly speaking, the aim is to examine the differences between a situation where consumers pay a fixed proportion of the price (copayments) with a situation where RP exist. The difference between the two scenarios is that in the first scenario, under copayments, the consumer pays the full price i. e. the copayment is equal to one. Under reference prices, consumers will have to pay the difference between the price of the good and this reference price. This model implies that the reference price set is below the price of both the branded and the generic good. The second scenario analysed will compare the case where, under copayments, consumers pay a percentage of the price (i. e. do not have to pay the full price anymore) with reference prices. In this setting, reference prices will be modelled as the way they have been introduced in Spain. This case implies that the reference price is set higher than the price of the generic good but lower than the price of the branded. Hence, if the consumer buys the branded good, the net price paid by the consumer will be equal to the difference between the price of the branded good and the reference price, plus the same copayment as before associated this time to the reference price. If the consumer decides to buy the generic good, then (s)he would have to pay the same copayment as before the implementation of reference prices. Furthermore, we analyse how firms' profits and expenditure of Health Authorities vary accordingly. As mentioned before, how the reference price has been set has not been universal. Finding the optimal reference price is beyond the scope of this thesis, although future research will be focusing in this issue. For this purpose, we have constructed two scenarios to take into account two possibilities that we observe in countries with such systems: setting the reference price below or above the price of the price of the generic drug (but never above the price of the branded good). The main result of the first case analysed is that prices are higher under reference prices, as well as total costs of the system, although reference prices are welfare enhancing. The net price paid by consumers is reduced under such system. The intuition is that we have compared a situation where consumers initially pay the full price with a situation where Health Authorities finance up to the reference price. Moreover, the reference price set in this way acts as a subsidy for the producers. Summarising, what we obtain is that consumers buy more, but at a cheaper price. When reference prices are implemented in the Spanish way, and we allow that under copayments, Health Authorities finance a proportion of the price of both goods, we show that prices and pharmaceutical costs are reduced under reference prices only if the reference price is set in a certain interval. Also profits for the duopolists might be reduced. These results are due to the opposing effects that reference prices have on branded and generic producers respectively. Chapter 2 complements Chapter 1, since it provides insights on firms' long-run decision (R&D). The aim of this chapter is to analyse how pharmaceutical firms' decision to innovate are affected by such RP system. We compare a situation with copayments with the situation where reference prices are introduced in the Spanish way. The importance of this chapter arises due to the type of competition we are observing in this industry. Firms also compete through product innovation, as well as in prices. This is due to the regulatory measures that many developed countries have in order to control for the prices of ethical drugs. The idea of this chapter is to model explicitly the decision of the firms undertaking R&D (the branded good producers), and see how this decision is affected by the introduction of reference prices instead of copayments. The model will incorporate the two types of goods that can arise after investing resources in R&D: breakthrough or me-too drugs. The former refers to very innovative drugs, and usually imply spending sufficiently high level of resources. The latter, however, involves fewer resources, although they are considered to be improvements of existing drugs. What we observe is that breakthrough drugs create a new market, while me-too drugs will have to compete with existing branded drugs and generics, if they exist. [...]